4 Steps For Reaching Economic Independence Early In Life
Dreams can become reality if you have the right strategy and mindset.
Did you ever get into a situation when you realize you’ve been aiming, or craving, for something for many, many years but didn’t how that something was called?
For me, I had the dream to retire at the age of 55 or earlier. Now, I know that the goal I wanted to make a reality is called economic independence.
Growing up, I saw my parents work hard, and it felt like they were chasing a dream that was always just barely out of their reach. I recall my dad looking at prefabricated houses brochures all the time. Year after year, he’d buy floorplans and analyzed them.
He had a drawer full of plans, quotes, financing options, etc., and each time I asked him what he was doing, he’d say: “I’m looking at how we can own a house. It costs a lot of money, and we need to save some more to afford it.”
When my parents reached their early forties, and I was already a teenager, they finally started the construction of a single-family home. They were so proud, and they put a great dose of energy working on weekends and at night to save money. All this was putting a huge amount of stress on their relationship. Everything revolved around the topic of affordability. Several years later, it led to divorce, and they sold the house they’d worked so long and hard for.
I started dreaming of a life that wouldn’t be as hard as the one my parents had and would allow me to retire at 55 years old. You’re probably asking yourself: did I reached economic independence by that time?
The answer is: Yes, but I didn’t retire at 55 because I chose to keep working.
Economic independence is what I was searching for during most of my adult life and is now precisely what I’m helping others achieve as early as possible.
If you’re reading this, it probably means you have a similar dream as I had.
To help you on your quest and save you from making the same mistakes I did, here are 4 steps you need to be willing to take in order to maximize your chances of reaching economic independence much earlier than I did.
4 Steps For Reaching Economic Independence Early In Life
Step 1: Create an accumulation account
An accumulation account is a savings account where you commit yourself to put $1000/month, no matter what.
I realize this idea can be intimidating when you’re still young, and you’re just entering the job market, but think about it, there are so many ways to make money these days. If you set this goal for yourself, you can find ways to achieve it.
The most important aspect of this step is to follow the concept of paying yourself first introduced by David Blaylock, among others.
Each month, before spending any money, put $1000 into a dedicated savings account. I suggest to call it your “Economic Independence Accumulation Account.”
Each time you think about something you’d like to purchase, ask yourself if you need it. If you consistently practice this, you’ll realize that most of the time, something simpler, cheaper, or maybe even free will be enough to make you happy.
This step sounds like a chore, but if you stick with it and make it a habit, you’ll quickly find out that it doesn’t impact your life nearly as much as you might expect.
Step 2: Set your economic independence definition
This is where you define what you’re working towards. In my case, I set a specific age for my goal (retiring at 55) instead of a definition characterized by income.
Based on current values, identify a number in $$$ sufficient as monthly income for you to be able to stop working. In this context, “stop working” means a state where you no longer need to exchange time for money.
If you’re working doing something you love each day by the time you reach your economic independence number, you can choose to keep doing it. The important thing here is that you’ll be working by choice, and if you don’t like it enough or get tired of it at some point, you can just stop.
That’s the independence you’ll have from that day on and into the future.
The number you’re looking for is the passive income deposited into your checking account each month based on your investments, which leads us to the next step.
Step 3: Select an investment strategy
As you’ve probably heard, different investments have different risks associated with them.
Buying stocks in a startup company developing a wild idea with no proven market is risky. But, if it works out, it could be a home run, and you might be able to sell your shares for a huge profit and reach your economic independence number very quickly.
The people who developed Snap and sold it for $1Billion in less than 1 year are good examples. Just be aware that there are millions of examples where the hope never turned into income.
If you use history as a guide, the best strategy is one you learn a lot about, be convinced that it works for you, and then stick with it. The people who succeeded repeatedly and did not lose their fortunes even in wars or massive economic crises mostly invest in real estate.
That should tell you something. I know it did for me.
Real estate is not a get rich quick scheme, but it sure is a stay rich forever scheme, and governments worldwide help their citizens with all kinds of programs to reach real estate ownership.
Step 4: Define your lifestyle quality requirements
This is something very few people talk about, and the main reason why I chose to delay my economic independence myself. I also have to admit that, most of my life, I was a lemming following the crowds and hoping to beat the Joneses in whatever society deemed desirable.
Your lifestyle quality requirements are composed of your choices in terms of occupation and location.
For example, if you’re interested in software development, programming, app design, etc., there are only so many hubs around the country where you can feed that passion.
In the past, when I was choosing careers, there were even fewer. If you chose to go and live where the action is, you had a choice between the San Francisco Bay area and the Redmond/Seattle area. Yes, both are beautiful, allow for the dream job and good pay, but the cost of living is really high.
In my life after the Air Force service, I lived in the San Francisco Bay area and San Diego county. There was a short interval in Santa Fe, New Mexico, but I was rarely ever there. As a result, I could never pay myself much more than the suggested $1000/month, even though I had six-figure incomes.
There’s a positive side to this story: I could’ve developed a real estate portfolio and reach economic independence much earlier if only I’d decided to move somewhere else. Not to the really cheap areas, but just a little less expensive. My lifestyle quality decisions delayed me from reaching economic independence until much later in life.
The big takeaway here is that you can choose where you want to live. With the recent developments, you might even have a huge advantage: you can probably convince employers to let you work remotely and live your passion pretty much anywhere.
I recently met a digital nomad who has these capabilities and can live where she loves to live doing what she loves to do. Now, she just needs to line up everything the right way, and economic independence will be in her life in almost no time.
I had a dream
Yes, I had a dream, and each step I took along the way helped me taste it a little more. Because of that, it kept me motivated to stay on course. That’s the most important takeaway: I could’ve switched to other investments many times, but I stuck to my strategy, and I’m a living example that it’s possible to have high passive income forever.
A cool aspect of this process is that it’s not really as much financial as it may sound; there’s an important human value to it. After graduating, I pledged to follow what the founder of my alma mater, Horrace Mann, had established as a mantra:
“Be ashamed to die until you have won some victory for humanity.”
In the context of my real estate investments, the victory lies in the shelter I’m able to provide, and humanity is the growing community of tenants who receive a good quality house for a reasonable rent.
In these challenging times, it might sometimes appear as if all things are negative and turning against us. I encourage you to have your dream, select a strategy you can stick with, and go through these 4 steps to reach your economic independence.
I know you can do this and probably earlier in your life than I have.
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